Stockholm
- Recent history suggests it doesn’t pay to expect the worst every
time a political shock hits markets.
Michael
Livijn, who as Nordea Bank's chief investment strategist makes
recommendations that guide about $100 billion, says don’t expect a
bloodbath if elections in Europe this year unleash a populist wave
like the one that propelled Donald Trump into the White House. That’s
because crisis fatigue has led to increasingly rapid market
corrections.
“It
took the market three days to shake off Brexit, with Trump it took
three hours, and the election in Italy three minutes,” Livijn said
in an interview in Stockholm on Wednesday.
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In
Europe right now, “we believe that the political risk premium is
slightly too high,” he said.
The next
big date on Europe’s political calendar is March 15, when the Dutch
vote in general elections. After that, it’s the turn of the euro
zone’s second-biggest economy, as France holds the first round in
presidential elections a month later. The National Front’s Marine
Le Pen, who wants to leave the euro, is neck-and-neck with Republican
candidate Francois Fillon, according to first round polling by
things stand now, Nordea is betting that a Le Pen win will result in
a smaller market reaction than an outcome that affirms the
establishment.
“The
big near-term question is of course Marine Le Pen,” Livijn said.
“The market’s sigh of relief if Le Pen doesn’t win will
probably be greater than the shock if she won, all things being
equal.”
Nordea
said earlier this month it is overweight global equities, reflecting
its view the asset class will outperform others. Livijn says
investors risk fretting too much over shocks whose outcome per
definition can’t be predicted, instead of analyzing the basics.
“Don’t
forget the fundamentals,” he said. “It’s so easy to just search
for the next trouble spot.”
Nor is
he overly deterred by events in Britain, as the country tries to find
a legal path out of the European Union.
With the
UK parliament getting the backing of the country’s highest court to
hand it more powers in the Brexit process, the risk of a more drawn
out divorce has increased. But here, too, investors would do well to
stay focused on the numbers, according to the Nordea strategist.
“It’s
hardly positive if they delay it for too long,” Livijn said. “But
I think it would be wrong to assume such a delay. Fundamentals in the
UK are pretty good, so fears seem to have been a bit exaggerated.”
In the
US, Livijn says Trump’s infrastructure plans face several
bureaucratic and practical hurdles.
“So
don’t expect anything to happen this year, or next, or even the
year after that,” he said. “There are no earmarked funds for
infrastructure at this stage.”
Instead,
he sees Trump’s agenda to reform taxes as something investors
should take more seriously. That will be the “major thing,” he
said.
Elsewhere
in the Nordic region, some policy makers are urging investors to wake
up. Erkki Liikanen, the governor of the Bank of Finland and an ECB
council member, said US investors are living in a “dream” if they
think less regulation and Trump’s stimulus pledges will be all
good. During a public debate in Helsinki on Sunday, Liikanen singled
out Trump’s protectionist policies as those likely to do the most
damage.